Casino operator
Echo Entertainment Group
has said it is looking to offload its Townsville operations for about $75 million.

Echo is vying to develop a large casino and entertainment complex on a riverfront development precinct in Brisbane, but has copped criticism from the state government and rivals over the standard of its three Queensland casinos.

Echo operates Brisbane’s Treasury Casino as well as Jupiters casinos in Townsville and on the Gold Coast. The company also operates Sydney’s The Star.

In an interview with the The Courier-Mail, Echo chief executive John Redmond confirmed speculation that the company would dump its Townsville casino. The company declined to comment further.

CLSA analyst Sacha Krien said he expected Echo to sell the non-core asset “if they can get a decent price" despite potential for earnings upside at the property. “They’re not a forced seller," he said. “They don’t have any gearing issues that requires them to find $75 million."

The only listed casino operator likely to be interested was
Skycity Entertainment
, which owns casinos in New Zealand, Adelaide and Darwin, Mr Krien said. However, he noted Skycity was also focused on some larger expansion projects at its own casinos. Skycity did not respond to requests for comment.

Mr Krien estimated that earnings before interest, tax, depreciation and amortisation at the Townsville property was less than $10 million. The cited purchase price of $75 million represents a price-to-earnings multiple of 7.5 times, which is less than the 6.8-times 2014 earnings that Echo is trading on.

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“But that discount multiple accounts for the risks around Sydney and Brisbane, not Townsville," Mr Krien said. “If Echo can resolve its issues in Queensland it’s likely to trade closer to 8-times. Then you’d be selling some of your earnings at a discount."

Mr Redmond also said Echo was ready to spend $1.5 billion across its Brisbane and Gold Coast casinos if given state government approval. The company has previously said it would dedicate over $1 billion to the Brisbane redevelopment.

The state government has left open the possibility of awarding a second casino licence to another operator in Brisbane, but Mr Redmond said the city could not sustain two casinos.

“We are not Singapore," he said. “Obviously I do not support it [another casino licence] but I understand that the government is trying to create a competitive tension to drive investment from potential operators."

Some casino watchers have said it might be tough for Echo to sell its Townsville casino now that there is the potential for new venues. But CLSA’s Mr Krien said Townsville largely draws upon local punters, with a few tourists thrown in. “Townsville’s locals market is unlikely to be affected by new integrated resorts in Queensland, unless one is in Townsville of course. You could make the argument Townsville benefits from more tourists to Queensland," he said, referring to potential new casinos, especially in Far North Queensland.

Echo’s three Queensland casinos have struggled amid poor consumer confidence domestically and are not significant players in the international VIP gambling market due to the standard of the venues.

Across Echo’s three Queensland casinos normalised revenue, which takes out volatility in VIP earnings, fell 1.7 per cent to $658.4 million in 2012-13. Gross revenue from the venues’ pokies – a casino’s highest margin business – fell 2.5 per cent to $276.2 million.